The Factortame Litigation: death of UK Sovereignty

Mr. Owusu’s injuries occurred when he dived from the beach onto a submerged sandbank. The defendants asked that the judge decline jurisdiction such that the case will then be heard in the Courts of Jamaica, on the basis of the doctrine of forum non conveniens, the judge refused on the grounds that, article 2 of the Brussels Convention in Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as amended; now Council Regulation No 44/2001 Brussels I) obliged him to assume jurisdiction with reference to the first defendant in view of the defendant's domicile, despite the connecting factors with Jamaica and  that if he did not try the action against the other defendants also, there would be a risk of conflicting decisions in different jurisdictions. On a preliminary reference to the ECJ, “the principal question referred was whether, where the case before a court of a Brussels Convention contracting state had connecting factors with a non-contracting state but none with any other contracting state, the court could exercise a discretionary power, available under its national law, to decline jurisdiction in favour of the courts of the non-contracting state.” 

Allianz SpA v West Tankers Inc Case C-185/07

          Challenged the action (anti-suit injunction) in the English court

                              Action brought against in Italian court

 

                            owned                                     chartered by  

                                                           collided with            owned by

KEY

             FACTS

             ACTION TAKEN

The Front Comor owned by West Tankers and chartered by Erg Petroli SpA (Erg) collided with a jetty in August 2000 in Syracuse owned by Erg, causing damage. Allianz was the insurer. The charterparty was governed by English law and contained a clause providing for London based arbitration. Naturally, Erg claimed compensation from their insurer Allianz claiming the full cover and commenced arbitration in London against West Tankers for the excess and this was in pursuant to the terms of the charterparty.

West Tankers however, denied liability but Allianz had already compensated Erg under the insurance policy. Allianz consequently brought proceedings on July 30, 2003 against West Tankers in Syracuse (place where the damage occurred) for the moneys paid to Erg under Italian Insurer's statutory right of subrogation under art.1916 of the Italian Civil Code.

West Tankers sought an anti-suit injunction from the English courts (which was granted) restraining the Italian insurer from taking any further steps in relation to the dispute except by way of arbitration in London in accordance with the charterparty. Allianz in turn directly appealed to the House of Lords contending that the injunction was contrary to Regulation 44/2001. Noteworthy, English law provides under s.37 of the Supreme Court Act 1981 that the High Court may order injunctive relief.

The problem might have been the potential conflict as to whether arbitration can ouster the bringing of a suit in either the domicile or location of the harmful event. Article 2(d) of the Regulation seems to be saying it does not apply to arbitration while Article 5 requires a suit be brought where a harmful event occurs if not suing in the defendant's domicile.

The House of Lords in turn referenced the matter to the ECJ where it was held that the courts of Member States “bound by Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [2001] OJ 12/1 (the Regulation) must not grant anti-suit injunctions preventing parties from bringing or continuing litigation proceedings in other Member States. Instead, the courts of one Member State should leave the courts of other Member States to decide for themselves whether or not to take jurisdiction over the dispute in question.”

Bridging the gap

The issue in Owusu was the English courts' ability to apply the doctrine of appropriate forum. The decision will have and have had a marked impact on the law relating to cross-border disputes. The conclusion of the court was that the doctrine of forum non conveniens was incompatible with the Brussels Regulation,  and this applies even where that doctrine was to be exercised by the English court in order to stay its proceedings in favour of proceedings in a jurisdiction outside the EU. The ECJ decided that the Brussels Regulation was applicable to a dispute where, of the two potential jurisdictions, only one was a party to the Regulation and the English court was being asked to stay proceedings in favour of a court outside the EU.

The impact is astounding in that where proceedings are first brought in England against a defendant domiciled in England, the court must accept jurisdiction to hear the claim, even where a jurisdiction not subject to the Brussels Regulation (eg of a co-defendant based outside the EU) may have been more apposite. The ECJ emphasised the importance of legal certainty and predictability in the application of the Brussels Regulation.

Therefore, where a number of defendants are sued in England but only one is domiciled there, the English courts may no longer be able to stay proceedings, even if the natural forum is a non-contracting state. As a result, parties are now more likely to become involved in proceedings in England when both the particular defendant and the subject matter have no connection with England, save for the domicile of a co-defendant.

This paper begs the question then: Does Owusu prevent the grant of anti-suit injunctions against proceedings in non-Member States? The answer to which is Yes.

West Tanker on the other hand represents a ocean of change for practitioners and an undermining of the beneficial support of the English courts for arbitration.

The decision does seem to affect one’s perception of the value of the English courts in support of arbitration and it will definitely change how London is view as a seat of arbitration. Inevitably there was a divergence between the civil and common law as to the understanding of the exclusion of arbitration from the Regulation and this decision perhaps pulls the two views closer together.

The decision also risks parties instituting proceedings in an attempt to slow down a dispute process very much contrary to the purpose of including an arbitration agreement.

It regrettable that the ECJ has given this decision, consequently removing the English court's ability to use an anti-suit injunction to uphold an arbitration clause against proceedings issued elsewhere in the EU. Henceforth parties who truly desire arbitration must be certain of clarity in their arbitration clause or they risk a jurisdictional dispute.

Talking about problems, one of the major concerns is the lack of certainty for parties subject to arbitration agreements.  The undoubted cure to this problem is that fewer businesses will choose European arbitration centres instead opting for jurisdictions which give them added certainty.

Perhaps, parties will need to re-evaluate the arbitration clauses in their agreements to ensure that they are prepared for the consequences of the West Tanker Case.  This would seem to be a viable option as parties will rush to include additional provisions in the agreement to enforce the arbitration agreement.

Conclusion

It seems as though that there is uncertainty all around. It has been suggested by some that the only possible solution to these problems is a reform of the law. Substantial reform is required and someone needs to tell the ECJ that their approach is wrong. If not, any reform will still fall foul to the will of the EU.

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